Good morning and happy cyber-Monday 😊
Hope you had a wonderful Thanksgiving!
“The habit of saving is itself an education: it fosters every virtue, teaches self-denial, cultivates the sense of order, trains the forethought, and so broadens the mind.”
– T.T. Munger, writer, 1830-1910
Earlier this year my oldest son David asked me to help him calculate his net worth. He has a savings account, a kids’ checking account, an investment account, and a piggy bank. He has a $5/week allowance, birthday / Christmas money, and any odd jobs he can do as a 13-year old around the neighborhood. We added the funds together and it came to just a few dollars over $1,000. A huge smile came across his face and he said, “Dad, I’m a thousandaire!”
What he has only begin to experience is the power of compounding interest … one of my favorite financial topics to discuss. Albert Einstein referred to compounding interest as “the 8th wonder of the world.” It truly is incredible.
Let’s say David never saves another dime but keeps his funds invested and does not touch them until age 65 (he is 13 now). Assuming an 8% annual compound growth rate his $1,000 would be worth $63,193.07 at age 65! $1,000 grows to $63,193.07!
Please understand that I’m just using a financial calculator for all of these examples, these do not represent any type of guarantees, projections, specific investments, or any recommendations. Just doing math. 😊
What if he were to start saving $150/month at age 18? His $1,000 would grow to $1,011,899.45! His total contributions would be $84,600 ($1,000 to start + $150/month from age 18-65) and the growth would be a staggering $927,299.45. Saving $150/month starting at age 18 and he is a millionaire by his 65th birthday.
I’m not sure what your definition of insane is, but that seems insane to me! 😊
I couldn’t help myself … I had to build an Excel spreadsheet on this which I have pasted below … check it out!
| Age | Contribution | Starting balance | Ending balance | Annual growth |
| 13 | $0 | $1,000 | $1,080.00 | $80.00 |
| 14 | $0 | $1,080.00 | $1,166.40 | $86.40 |
| 15 | $0 | $1,166.40 | $1,259.71 | $93.31 |
| 16 | $0 | $1,259.71 | $1,360.49 | $100.78 |
| 17 | $0 | $1,360.49 | $1,469.33 | $108.84 |
| 18 | $1,800 | $3,269.33 | $3,530.87 | $261.55 |
| 19 | $1,800 | $5,330.87 | $5,757.34 | $426.47 |
| 20 | $1,800 | $7,557.34 | $8,161.93 | $604.59 |
| 21 | $1,800 | $9,961.93 | $10,758.89 | $796.95 |
| 22 | $1,800 | $12,558.89 | $13,563.60 | $1,004.71 |
| 23 | $1,800 | $15,363.60 | $16,592.69 | $1,229.09 |
| 24 | $1,800 | $18,392.69 | $19,864.10 | $1,471.41 |
| 25 | $1,800 | $21,664.10 | $23,397.23 | $1,733.13 |
| 26 | $1,800 | $25,197.23 | $27,213.01 | $2,015.78 |
| 27 | $1,800 | $29,013.01 | $31,334.05 | $2,321.04 |
| 28 | $1,800 | $33,134.05 | $35,784.77 | $2,650.72 |
| 29 | $1,800 | $37,584.77 | $40,591.55 | $3,006.78 |
| 30 | $1,800 | $42,391.55 | $45,782.88 | $3,391.32 |
| 31 | $1,800 | $47,582.88 | $51,389.51 | $3,806.63 |
| 32 | $1,800 | $53,189.51 | $57,444.67 | $4,255.16 |
| 33 | $1,800 | $59,244.67 | $63,984.24 | $4,739.57 |
| 34 | $1,800 | $65,784.24 | $71,046.98 | $5,262.74 |
| 35 | $1,800 | $72,846.98 | $78,674.74 | $5,827.76 |
| 36 | $1,800 | $80,474.74 | $86,912.72 | $6,437.98 |
| 37 | $1,800 | $88,712.72 | $95,809.73 | $7,097.02 |
| 38 | $1,800 | $97,609.73 | $105,418.51 | $7,808.78 |
| 39 | $1,800 | $107,218.51 | $115,795.99 | $8,577.48 |
| 40 | $1,800 | $117,595.99 | $127,003.67 | $9,407.68 |
| 41 | $1,800 | $128,803.67 | $139,107.97 | $10,304.29 |
| 42 | $1,800 | $140,907.97 | $152,180.60 | $11,272.64 |
| 43 | $1,800 | $153,980.60 | $166,299.05 | $12,318.45 |
| 44 | $1,800 | $168,099.05 | $181,546.98 | $13,447.92 |
| 45 | $1,800 | $183,346.98 | $198,014.73 | $14,667.76 |
| 46 | $1,800 | $199,814.73 | $215,799.91 | $15,985.18 |
| 47 | $1,800 | $217,599.91 | $235,007.91 | $17,407.99 |
| 48 | $1,800 | $236,807.91 | $255,752.54 | $18,944.63 |
| 49 | $1,800 | $257,552.54 | $278,156.74 | $20,604.20 |
| 50 | $1,800 | $279,956.74 | $302,353.28 | $22,396.54 |
| 51 | $1,800 | $304,153.28 | $328,485.54 | $24,332.26 |
| 52 | $1,800 | $330,285.54 | $356,708.39 | $26,422.84 |
| 53 | $1,800 | $358,508.39 | $387,189.06 | $28,680.67 |
| 54 | $1,800 | $388,989.06 | $420,108.18 | $31,119.12 |
| 55 | $1,800 | $421,908.18 | $455,660.84 | $33,752.65 |
| 56 | $1,800 | $457,460.84 | $494,057.71 | $36,596.87 |
| 57 | $1,800 | $495,857.71 | $535,526.32 | $39,668.62 |
| 58 | $1,800 | $537,326.32 | $580,312.43 | $42,986.11 |
| 59 | $1,800 | $582,112.43 | $628,681.42 | $46,568.99 |
| 60 | $1,800 | $630,481.42 | $680,919.94 | $50,438.51 |
| 61 | $1,800 | $682,719.94 | $737,337.53 | $54,617.59 |
| 62 | $1,800 | $739,137.53 | $798,268.53 | $59,131.00 |
| 63 | $1,800 | $800,068.53 | $864,074.02 | $64,005.48 |
| 64 | $1,800 | $865,874.02 | $935,143.94 | $69,269.92 |
| 65 | $1,800 | $936,943.94 | $1,011,899.45 | $74,955.51 |
Please allow me to point out just a couple of things on this chart and I’ll wrap up.
- Look at age 22 – in that year his annual growth is over $1,000 … that means that his annual growth is more than he started with at 13.
- Look at the growth between ages 42-43 – that now exceeds $1,000 of additional growth year over year – here he is making MORE year over year than he originally started with!
- Look at age 60 – by that age he is making $50,000 in growth – that’s a salary in interest!
I’m having fun here, so let’s me just throw out a few more numbers to hopefully bring this concept home.
I know my son, when he sees these figures and he will say something along the lines of, “What if I save $100 per week when I get older?” So, if I simply change the annual savings rate from $1,800/year ($150/month) to $5,200/year ($100/week) then the value at age 65 is over $2 million ($2,042,927.43).
One more and I promise I’ll be done 😉
Let’s take this very scenario above where David has $2,042,927.43 at age 65 and say that he stops saving at 65 but never touches the funds. So, the $2,042,927.43 just grows at 8% per year. Let’s say his life expectancy is 95. Guess how much the value would be at age 95?
His $1,000 starting balance and adding at total of $225,800 over his working years turns into over $20 million. $20,557,277.79!
My friends, this is not just cool, this is life-changing, generational-changing information to those who understand it and put it to work for them.
Thank you for allowing me to work with you and for you!
Make it a great week ahead.